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Biotech / Medical : VD's Model Portfolio & Discussion Thread -- Ignore unavailable to you. Want to Upgrade?

To: Flagrante Delictu who wrote (4681)	4/20/1998 12:56:00 PM
From: Biomaven	Read Replies (1) \| Respond to of 9719

Bernie, I agree that for someone purchasing a new stake, the LGNDW are currently a better value than LGND. However, we were talking about selling LGND and buying LGNDW. Here, most, if not all, the benefit is wiped out by the spreads and transaction costs. The B-S model is based on the assumption that you invest the money saved (by buying the option rather than the stock) in a treasury instrument. If instead, you are using it to pay off margin debt, this would increase the value of the warrant to you by perhaps $0.20 - less if you look at the after-tax cost. The $9.55 figure was using a higher volatility than the market is currently assuming for LGND, which is currently around 50% based on the quoted options available. Sure your risk of substantial loss if you are buying an equal number of shares is less in the warrant - this is part of the benefit you get for paying the warrant premium. It's kind of like buying insurance - you make a little less if the stock goes up, but you stand to lose less if there is a total disaster. Bottom line in my view is still that the warrants are currently a little underpriced compared with the stock, but the difference is probaly not worth the transaction costs of switching from the stock to the warrant. Peter (long since escaped from academe).